[Opinion] Business Contributions

[TheMerchantOfVenice]

I have ventured into a new business with three partners and being a new business has cash flow issues. We have all had to put money in from time to time, amounts dependent on shareholding.

If I got to a point of not being able to contribute anymore, would I be forced to sell shares to the other partners in lieu of putting money in? Or are there other options?

Any opinion would be appreciated.

[Blurock]

Cash flow problems are endemic of new ventures as everything does not always work out as we have planned. Funding is however not easy to obtain. Depending on the type of business, you may consider factoring your invoices until such time that you are on a positive cash flow.

Customers want credit for at least 30 days and by discounting the invoice, the bank/factoring house will pay you up to 70% or 80% of the invoice value, based on the credit standing of the creditor. This will allow you to purchase new stock/raw materials for the next sale.

It is not advisable to keep funding losses/shortfalls if uncertain of a turnaround. Your shareholders agreement should indicate whether you have agreed on additional funding or whther your investment into the business was once-off.

[Dave A]

Great advice from Blurock above. Especially in terms of what your current "obligations" may be -

It is not advisable to keep funding losses/shortfalls if uncertain of a turnaround. Your shareholders agreement should indicate whether you have agreed on additional funding or whther your investment into the business was once-off.

[TheMerchantOfVenice]

Thanks very much! Makes sense.

[TheMerchantOfVenice]

After all this, my partners have pulled out. A great relief but I am left holding the baby.

The sale agreement (of shares) is basically a down payment which I made on their acceptance of my offer, with a small portion payable over 6 months. On this initial payment, the outgoing directors were to resign as directors and be taken off CIPC. Shares were to be transferred on full payment.

There is a clause in the agreement stating that if I sold any of the assets prior the the 6 months installments being paid, they would have a right to any profits made from selling the assets.

One month down the line:

1. They have not resigned as direcectors at CIPC
2. They have not handed over HR files, creditor invoices etc etc . all needed to continue with the business
3. Numerous emails sent regarding the above all ignored.
4. I only gained access to the banking profile a day before salaries were to be paid

I have refused to pay the 1st installment as they have not held up there end of the agreement.

What now?

[Blurock]

There appears to be a complete breakdown in trust and communication. I would consider legal advice and action from here on.

[Andromeda]

There is no mention of the share certificates ..... that is kind of important, because directors can be appointed and removed by shareholders. Shares are not an imaginary thing, they are represented by certificates and if you don't have them it becomes more complicated.

Blurock's advise is spot on, get a competent attorney involved.